Hey Reader,

When I started training Jiu-Jitsu, I had no idea what I was doing.

So, I started watching instructionals with flashy submissions, but I didn't get any better.

Why? Because I made the same mistake we’re all guilty of at some point in our lives.

I tried to skip the fundamentals.

In Jiu-Jitsu terms, you need to know how to get out from under a person who’s trying to control you before you can put them in an anaconda choke (side note: I later learned the anaconda choke from the inventor, Milton Vieira).

In investing terms, you need to address these 5 factors before moving on to anything else.

Need, Capacity, and Tolerance for Risk

Before you roll your eyes, I’m not talking about risk tolerance questionnaires. I’m talking about understanding:

The return you need to achieve to maintain your purchasing power and avoid running out of money (long-term planning).

The amount of risk your situation allows for. Mostly influenced by your time horizon, income, liquidity needs, and flexibility for adjustments.

The amount of volatility you can stomach without losing sleep or going to cash when (not if) the market goes down by 10%, 20%, 30%, or more.

Diversified Asset Allocation

Once you’ve determined your risk characteristics, you can determine what percentage of your portfolio to invest in stocks, bonds, and other major asset classes.

I commonly see portfolios made up of all US or all technology stocks because that’s what’s outperformed over the last 10+ years. However, there have been other 10+ year periods where the opposite was true.

​Source​

Asset Location

You want to pay less taxes, right?

Holding your investments in the right account type is an easy way to boost your after-tax returns and keep more money in your pocket.

Here’s a simple summary of tax categories, accounts, and treatment:

Systematic Rebalancing

Over time, your asset allocation will drift from your target. If it drifts too far off target, it no longer represents your unique risk and return characteristics.

That’s where rebalancing comes in.

A systematized rebalancing process takes the emotion out of your investment decisions, reduces portfolio volatility, and has even been shown to increase returns (Source).

Low Expense Funds

Investment products are one of the few exceptions where you usually DON’T get what you pay for.

Several studies have found high high-expense funds underperform low-expense funds (Vanguard) and that expense ratios have been the most proven predictor of future fund returns (Morningstar).

As your portfolio grows, small percentages translate to substantial dollars. Higher expense ratios equate to money wasted.

Conclusion

Everyone wants to hit a home run (or an anaconda choke), but basic fundamentals are what carry your portfolio and make you money while you sleep.

If you aren't taking care of these, it's time for an investment makeover.

Until next week!

PS - 3rd quarter estimated payments are due on Monday, September 16th. Make sure you meet the IRS Safe Harbor withholding amount to avoid penalties and interest!

PPS - If you...

• Want practical advice on how to reach your financial goals
• Don't have time to properly manage your financial situation
• Need help navigating the financial ramifications of a significant life event

That's what we do.

Still have questions? We have answers

• ​Services & Pricing​
• ​Frequently Asked Questions​

Disclaimer:

This is for general educational and illustration purposes only. This should not be taken as individual investment, tax, or legal advice.

Consult your legal, tax, and financial team before implementing any financial strategies for your specific circumstances.